Russia

Russia: New GAAR provisions in the Tax Code

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The Russian parliament on 5 July 2017 approved a draft law (no. 529775-6) introducing a new general anti-avoidance rule (GAAR) into the Tax Code.

The new law introduces a new Article 54.1 containing a definition of the limitations on the rights and obligations exercised by taxpayers in calculating the tax base. According to the Article, the tax base or the tax due may not be reduced on the basis of incorrect information relating to the economic facts; incorrect information about persons subject to registration for tax or for accounting registers; or incorrect information in the tax return.

Where the tax base or the tax due is reduced the principal purpose of the transaction must not be to achieve an underpayment of tax or to obtain a tax credit. The liability created by the transaction should be the responsibility of a party to a contract concluded with the taxpayer, or of another person who took over the responsibility by a contract or under the law.

Russia submits draft law on automatic international exchange of tax information including documentation requirements

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The Russian Government on 20 July 2017, submitted the draft bill (Bill No. 231414-7) on the automatic international exchange of tax information to the Russian State Duma.

The draft bill proposes amendments to the Tax Code, which are necessary for ensuring the collection and exchange of information with competent bodies of foreign countries with a view to implementing the Convention on Mutual Administrative Assistance in Tax Matters. Thus, taxpayers forming part of an international group of companies are obligated to report to the tax authority their participation in the international group of companies and country-specific information, including a country-specific tax return, global documents on the international group of companies and national documents of the participant in the international group.

The new draft law proposes the following changes:

  • The new draft law proposes that the law will enter into force on 1 January 2018 and apply to financial periods of a multinational group commencing from that date. Thus, the Country-by-Country report and Master/Local file requirements will be effective for fiscal years beginning on or after 1 January 2018, although voluntary (parent surrogate) filing of CbC reports in Russia will still be available for prior years.
  • Under the new law, the period for the tax authority to request the global documentation has changed. The period permitted is not earlier than 12 months and no later than 36 months after the end of a financial year.
  • The draft law also proposes new penalties for failing to submit the Master file and the Local file in the amount of RUB 100,000, and the initial penalty exemption period is extended to 2020, including for CbC reporting and notification penalties.

Russia: Government approves signing of MLI to implement tax treaty related BEPS measures

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The Russian government on 20 May 2017, approved the signing of the Multilateral Instrument (MLI) to implement into bilateral tax treaties the tax treaty-related measures arising from the OECD / G20 BEPS Project to tackle base erosion and profit shifting. A signing ceremony is scheduled to be held on 7th June 2017 in Paris.

The BEPS recommendations combat tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. The multilateral instrument will enable countries to adjust their bilateral tax treaties to include BEPS treaty-related recommendations without having to renegotiate each bilateral treaty.

Russia: Publishes the draft law on CbC reporting requirements for multinationals corporate groups

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The Russian government on 6 March 2017, published an amended draft law providing for new provisions on the international automatic exchange of financial accounting information for the Russian fiscal regulation and for setting new standards for the clearing price documentation for multinational corporations.

Main changes of the draft law are discussed below:

  • Applies to multinational group companies (MNE) with annual consolidated group revenue equal to or exceeding RUB 50 billion in the previous year. Regulations extend to subsidiary entities. If the parent entity is foreign, the local threshold should be used to determine if a Country-by-Country report (“CbC report”) is required.
  • If the ultimate parent entity of an MNE or an authorised member of an MNE compiles consolidated financial statements in a currency other than the currency of the Russian Federation, it should be converted into roubles.
  • Entities are required to notify the Russian tax authorities within 8 months (not three months as stated in the previous version of the draft law) from the end of the last fiscal year of the parent entity.
  • Provisions regarding penalties remain the same. Failure to provide the notification or the provision of incorrect information will result in a penalty of up to RUB 50,000 (penalty not applicable for 2017–2019). Failure to submit a CbC report when required or submission of incorrect information will lead to penalties of up to RUB 100,000 (penalty not applicable for 2017–2019). However, if the taxpayer identifies inaccuracies in the filed CbC report and submits a revised version before it is discovered by the tax authorities, this will exempt the taxpayer from sanctions.
  • The draft law emphasises the importance of consistency in the chosen approach to the use of information sources.
  • The deadline for CbC report submission remains the same: it must be filed no later than 12 months after the last day of the financial year of the MNE.

Master file and Local file:

  • According to the draft law, MNE groups are not required to file their master file and local file with tax authorities. These files shall be provided only upon demand of the Russian tax authorities.
  • Once a demand has been issued, the Russian member must provide the master file within three months from the date of the demand, or within 15 months from the end of the most recent financial year, whichever is later.

Language

  • All information (CbC report, Master file, Local file) should be presented in Russian.

Russia: Value added tax increased to 22% from January 2019

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The Russian government has confirmed that it intends to increase VAT from 18% to 22% on 1 January 2019. The rise will help to fund a reduction in the employee’s tax rate to 22% from 30%.

Japan and Russia have agreed on a new DTA

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On 28 April 2017, Japan’s Ministry of Finance has announced that the two countries have agreed in principle to a new tax convention to replace the existing tax treaty between Japan and the Union of Soviet Socialist Republics, which entered into force in 1986.

Russia: Facebook and other global digital giants agree to pay ‘Google Tax’

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On June 29, 2016, the government has approved the VAT Law for foreign companies selling online services to Russian consumers. Therefore, over a hundred foreign corporations have already registered in Russia. Among these companies are: Alibaba, Amazon, Apple Distribution International, Bloomberg, Financial Times, GoDaddy, Google Commerce Ltd, Microsoft Ireland, Netflix International B.V., as well as Wargaming Group (the Belarusian publisher of World of Tanks) and Chelsea football club as a video content distributor.

Recently, the social media giant Facebook has also joined the list of IT firms registered with Russia’s Federal Tax Service as a foreign company selling electronic content in Russia. By introducing this tax the government is trying to create equal conditions for all companies working on the Russian market.

Remarkably, LinkedIn also registered, in spite of the fact that its site is no longer accessible from Russia. It was blocked in November last year for non-compliance with Russia’s legislation on personal data storage.